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Telcos and ISPs adding value through diversification

With the launch of Spark’s app store last week, the drive for Internet Service Providers/telcos to find new sources of revenue was once again on display. The idea of an app store is not new – I know Amazon Web Services and Namecheap are already offering the same type of service, but it is a novel way to add value in the context of the New Zealand market.

This move by Spark got me thinking about the different ways in which business Telcos in NZ are looking to avoid the trap of being limited to selling low value internet connections.

Voice. This isn’t new, but there is increased focus on it. A low margin game that requires scale and is dominated by the large telcos, it is nevertheless seeing a large amount of investment from a number of mid-tier telcos.

Scale. A common tactic at present is to develop scale through acquisition. Some are growing across verticals (Plan B buying Turnstone or 2Degrees buying Snap), and some are staying within their existing vertical (Vocus buying FX, M2 buying CallPlus).

Rackspace/Co-location. A few companies are focusing on building new facilities to increase their co-location sales. Rackspace makes clients sticky and provides reasonable revenue, but revenue is shrinking, competition is high (particularly from virtualisation market), and entry costs are prohibitive.

Cloud services. This encompasses a range of potential services, but largely falls within the realm of LAN side services such as virtual desktops, backups, Office 365, etc.

Managed services. Adding a managed router, switch or firewall to a service has long being a practice of Telcos when selling business services, but the focus on these value adds is increasing markedly.

LAN management. Some ISP’s are opting to bundle a comprehensive offering where everything from desktops and printers, right through to VPLS WANs are supported. Other telcos, such as DTS, work closely with channel partners who are primarily LAN-focused Managed Service Providers, and as such, we are always looking to ensure that we do not compete directly with them. Telcos that have never relied on the channel for leads are free to add new service ranges without fear of direct consequence, but their sales overheads are much higher. Conversely of course, margins are being squeezed for MSPs as well, so they are looking hard at the network/connectivity space.

Wholesale. Regardless of which service is being sold, wholesale is about scale combined with low overheads, and as such, it really doesn’t get you away from the issues being faced at the retail level. The only exception being where services that really don’t apply in the retail sphere are able to be provided on a wholesale basis, such as southern cross capacity for example.

Adding features to existing services. In Australia, iiNet have added an option for business Internet connections to include an unmetered Wi-Fi service which can in turn be used by their business guests/clients. Each user only gets 50MB of data, but if the iiNet client’s customers are also iiNet residential users, then the Wi-Fi service allows additional data to be used. This isn’t a game changer, particularly when most internet connections now are unlimited and a managed router can easily be configured for customer Wi-Fi access, but it is in the same vein as Sparks national phone box based Wi-Fi network which adds value to mobile plans.

User access and control. The ability for clients to access information and control changes without the need to lodge support tickets is key. Further, companies that provide open APIs for Business-to-Business integration, and look to actively integrate their own systems with their suppliers’ APIs (where they exist, and they aren’t common enough) are going to find themselves lowering costs and improving their client’s experience. This isn’t necessarily a new revenue stream for telcos, but more a way to add value to existing revenue and thereby distinguish themselves from others in the market.

The aspect that all of these options have in common is that they in some way allow companies to get a bigger share of the market, in whatever form. Almost every aspect of the ICT market is being commoditised and margins driven down, so companies are increasingly moving away from a specialised and fairly narrow focus, to a wider ranging collection of services.

Selling more services to existing customers is obviously a key strategy; the question is, which services to sell? And, how will the capability to provide those services be created?

I say, well done to Spark on the launch of the app store, although I don’t actually think it will add much value to their bottom line, especially not with such a small number of apps available, it does show that they are focused on adding value to their business and looking to innovate.

Brendan Ritchie is the CEO of DTS, a business focused ISP that has been supplying clients across Australia and New Zealand with internet, voice and tailored WAN solutions since 2002. Tweet him on @bcarmody.